Fin/Inv

There are several commentators on the web that I read consistently, and John Hussman of Hussman Funds is one of them. I always take great comfort when my analysis rhymes with his because like myself I know he does his homework too.

My weekly report on sentiment was about not straying too far from the data because of short term price moves. For example, this past week's pop to almost highs in the major indices has the "this stuff doesn't work" readers emailing in. As stated a couple of weeks ago, we are in "Bounce Mode". In the end, I see no reason to stray from the price cycle as defined by greed and fear that has worked over and over again.

This week, Hussman has similar thoughts on his mind. On abandoning the data because of short term market movements, he states:

"Many investment professionals have developed a habit of forming expectations based on nothing more than extrapolation of short-term trends in the data, even when those extrapolations are inconsistent with market history or well-established economic relationships. This was a key element in creating the housing bubble - no price was too high and no bubble was recognized, because all that mattered was that prices were rising. The focus of analysts on the short-term ups and downs of economic and earnings reports has become such a mainstay of financial news that it's not at all clear to me that investors even recognize how devoid the current financial discourse is of real analysis."

He goes on to state and because I find truth and humor in the following:

"Instead, the only question today is whether earnings and economic reports are delivering 'surprises' versus what 'the Street' estimated the day before the data was released....But to watch a half hour of CNBC today is like watching an old episode of Gomer Pyle ('Well, surprise, surprise, surprise!')."

Hussman also touched on another theme that I have written on recently. In my article, "Danger, Danger Will Robinson", I state that the combination of overly bullish sentiment and strong trends in our indicator that measures trends in gold, crude oil, and yields on the 10 year Treasury bond had a high likelihood of leading to a market top. Hussman uses similar data to reach similar conclusions. He characterizes this market environment as overbullish, over valued, overbought, and rising yield pressures, and using more extensive data, he provides the following context to these observations:

Last week, we observed a subtle shift in yield pressures, which has historically been associated with fairly abrupt "air pockets" in which stocks have typically lost 10% or more within the span of about 6 weeks.

Consider the following conditions: 1) market valuations above their historical norm by any amount at all - for example, a dividend yield on the S&P 500 anything less than 3.7%, and; 2) The 10-year Treasury bond yield and the year-over-year CPI inflation rate higher than their levels of 6 months earlier (regardless of whether their absolute levels have been high or low).

If you look at market history since 1940, this condition has been in effect nearly 20% of the time. Yet this set of factors alone has made an enormous difference in the returns achieved by the market. When the above conditions have been in effect at the same time, the S&P 500 has actually lost ground on a price basis, and has delivered an annualized return of just 0.28%. In contrast, when those conditions have not been in effect, the market has advanced at an average annualized rate of 14.94%. Of course, these averages mask a lot of volatility, but it is clear that even the most basic combination of low stock yields and rising yield pressures is hostile to total returns.

To the above conditions, if Treasury bill yields are also higher than 6 months earlier (again, regardless of the absolute level of yields), the annualized return drops to -0.83%. Add a discount rate higher than 6 months earlier, and the annualized return drops to -2.22%.

Now add overbought conditions (say, a 12-month advance in the S&P 500 of greater than 30%), and the annualized return turns sharply negative, to -39.17%. Overvalued, overbought, conditions with rising yield pressures are trouble. Given those conditions, excessive bullishness only worsens the situation. Now, this combination of conditions has never persisted for an entire year, so the actual loss sustained by the market is not so extreme, but suffice it to say that the typical loss has been in excess of 10%. Based on the current overbought status of the market, there are only three similar periods that we can identify in post-war data: August-October 1999 (which was followed by an abrupt air pocket of greater than 10%), September-October 1987 (no comment required), and September-December 1955 (which was followed by a 10% correction, a brief recovery, and a secondary decline to re-test the initial low).

In the final analysis, I like to read Hussman because I believe he is diligent and disciplined in his analysis. The fact that I come to similar conclusions often is comforting although that doesn't mean we are always correct. Nonetheless, the consistency of the process or approach is over half the battle in this game, and that is what I strive for, and that is why I think Hussman is successful too.

I feel like the robot in the television show, "Lost In Space". Investor sentiment remains bullish and trends in gold, crude oil, and yields on the 10 year Treasury bond are collectively becoming extreme as well. This combination has me thinking: "Danger, Danger Will Robinson".

Yesterday, I presented our combination sentiment indicator and our indicator that measures the trends in gold, crude oil, and yields on 10 year Treasury bonds. As stand alone indicators, each of these would suggest caution on equities. Together they work synergistically. For example, with regards to our combination indicator constructed from the trends in gold, crude oil, and 10 year Treasury yields, the data was reasonably compelling to suggest that when these trends are strong (as they are now) that it is a headwind for equities. The data is more compelling when we consider both sentiment and trends in gold, crude oil, and yields on 10 year Treasury bonds.

Figure 1 is a weekly chart of the S&P500. The red dots over the price bars are those times when both sentiment was bullish and our combination indicator was in the extreme zone suggesting strong trends in gold, crude oil, and yields on the 10 year Treasury bonds. The chart goes back to 2004, which is the time our sentiment indicator starts.

Figure 1. S&P500/ weekly

This data is more suggestive of a market top than a lift off to a new bull run. The only thing that would change my mind regarding this is if some of the shorter term measures of sentiment (i.e., like the Rydex asset data) were persistently bearish (i.e., a bullish signal). As a representative sample of market participants, these short term traders were betting against the market mid-July, 2009 to mid - August, 2009 when the market went on a moonshot and the "this time is different" scenario unfolded. No doubt short covering had something to do with this.

Lastly, I believe the market is setting up for a reversal. The other day I made "The Bearish Case For Equities", and I used the Ultra Short S&P500 ProShares (symbol: SDS) as an example. I explained how a weekly close below the key pivot at 33.57 would be a good sign of a continuation move for equities. In other words, if SDS closes below 33.57 on a weekly, then expect higher equity prices. This is a true statement as key pivots act as support and resistance and we are below support here on SDS. The key pivot at 33.57 is now resistance.

However, this is also the time where there are reversals or "fake outs", and with sentiment modestly bullish and with trends in crude oil, gold, and yields on the 10 year Treasury strong, I believe there is a reasonable chance that the market is setting itself up for such a scenario. We cannot have a reversal without a close below the key pivot. So today's action is the first step in the process. If equity prices do continue higher, then it is my expectation that it will be at the grinding pace we have seen over the past 4 months.

I know this is somewhat controversial, but it is consistent with the data and the price action. The price action is good despite the lack of volume; all the other data suggests headwinds. Putting it together, there is a higher than likely chance of reversal.

Lastly, to keep it light, I have included a picture of the robot from "Lost In Space". Did you know that his name was B-9? See figure 2.

Figure 2. Robot

“Gold's quantity cannot increase at the same rate as you can print money, which will eventually weaken the US dollar. I’m not saying that the dollar will go straight away down because other currencies like the euro are even worse at the present time. But eventually if you print money, the purchasing power will lose value."

in CNBC

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

Our composite indicator that assesses the strength in the trends of gold, 10 year Treasury yields, and crude oil is likely to be back in the extreme zone by the end of the week. This represents a headwind for equities.

Figure 1 is a weekly chart of the S&P500 and the indicator is shown in the lower panel. This week's value isn't reflected in the indicator until Friday's close, but if the markets closed right now the indicator would be at the extreme zone. If you had been so smart to only "buy" the S&P500 during those times when the indicator was extreme, then you would get those trades seen in figure 1. Winning trades are in green; the losing trades are noted by the red trend line. Since the March, 2009 low, the indicator has been at or in the extreme zone 6 times. If you bet long on the S&P500 when the indicator was extreme, these 6 trades resulted in 3 losses (-4.99%, -2.24%, -0.78%) and 3 wins (1.06%, 0.35%, 0.04%). The winning trades essentially were multi-week trading ranges for the S&P500. During the past 12 months when the indicator was in the extreme zone, the S&P500 either went down or side ways.

Figure 1. S&P500/ weekly

For a more comprehensive look at this indicator and how stocks under perform when the indicator is extreme, I refer you to the following articles:

"Developing A Trading Strategy (Part 2)"

"More Headwinds To Worry About"

"Inflationary Pressures Are A Legitimate Concern"

"The dollar and the euro have been weak against gold. We are now at USD 1,138 per ounce and that against gold all paper currencies will continue to depreciate over time."

in CNBC India

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

"The sad part is none of this currencies are very desirable, neither the euro, nor the dollar in the long run. I think the only sound currency really is obviously gold, silver, platinum and palladium. If you want paper currencies, I think the Singapore Dollar is a reasonable stable currency."

in FT.com

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and futures like Gold and Oil.

There has been a lot of hand wringing over the situation in Greece. On analyst asked the question could Greece repeat the Argentina 2001 fiasco? Notable features of that episode were:

How did the situation in Argentina end? Not too well. Economic depression, mass insolvencies, bank runs, forced seizure of deposits, unemployment and underemployment exceeding 40%, blood in the streets, a fall of the government, a complete reneging of the terms of the "rescue packages," an abandonment of the hard currency monetary regime, a mega-devaluation, and a massive default of foreign debt obligations.

The euro as a quasi-gold standard
This case of Greece is instructive for the hard money crowd who call for the return of the gold standard. Mike Pettis writes:

Unfortunately the euro today imposes a kind of gold standard on European countries – it forces them to adjust to excessively high domestic prices, large trade deficits, and/or large fiscal deficits in the same way they would have had to adjust under the gold standard, and I don’t think that is politically likely to be acceptable. The countries that need depreciation to regain competitiveness or monetization of the debt to regain control of the deficit will have to choose between adjusting via deflation and high unemployment or exiting the euro. Politics makes the latter more likely.

The gold standard is a really bad idea
In other words, modern democracies make the kinds of adjustments required under a gold standard virtually impossible. The kinds of solutions envisaged are akin to the medieval practice of throwing someone into the water to see if the subject is a witch. If she floats, she is a witch and should be burned at the stake. If she drowns, oh well…

Moreover, there isn’t enough gold around for a gold standard to be practical without massive dislocation. That’s why a gold standard is a really bad idea.

Ok, this one is for all you bull market geniuses out there who have been buying the SPDR Gold Trust (symbol: GLD), the Market Vectors Gold Miners ETF (symbol: GDX), and the i-Shares Silver Trust (symbol: SLV) all the way down and since they peaked in mid January.

Let me remind you that the last time we visited GLD, GDX, and SLV it was on January 20, 2010 when I stated that "it is my expectation that precious metals will be under pressure." So let's revisit those ETF's, and see where we stand a month later.

Figure 1 is a daily chart of the SPDR Gold Trust (symbol: GLD). The indicator in the lower panel is the on balance volume (OBV) indicator with a 40 period simple moving average. The red dots on the price bars are "super" pivots - another methodology that I have developed to delineate the best areas of buying and selling or support and resistance. On the GLD, I put red arrows over the January 20th price bar and the price bar inside the gray oval is from January 11 when I actually issued a sell signal on GLD.

Figure 1. GLD/ daily

The first thing we notice is that GLD remains above support at 104.37. The second thing to notice is the OBV indicator is leading price lower. One would think that support will be tested; a break below this level implies the breakout and gap at $100 being filled.

Figure 2 is a daily chart of the Market Vectors Gold Miners (symbol: GDX). The red arrows identify the January 20th price bar. The horizontal red lines are our important levels of support and resistance. Price is back below support, which is now resistance. The next level of support is at 34.64. The OBV is leading price lower, and the OBV moving average has rolled over as well. While points 1 and 2 on the chart were similar set ups to the current situation -i.e., a break below support and then a thrust higher - there is one difference in that prices are below their 200 day moving average.

Figure 2. GDX/ daily

Figure 3 is a daily chart of the i-Shares Silver Trust (symbol: SLV). The red arrows on the chart identify the January 20th price bar. SLV is already below a super pivot having gapped below this level and the 200 day moving average 2 days ago. The next level of support is at 14.78, and I would expect that level to be tested. Below that is 12.79.

Figure 3. SLV/ daily

I know I have been "completely wrong for the last 6 months" and none of this stuff works especially when it doesn't and analysis like this is completely "useless". Yeah, I think I have those quotes right!

Marc Faber, the publisher of the Gloom, Boom & Doom report, talks with Bloomberg's Mike Firn about his forecast for U.S. stocks.

Faber, speaking in Tokyo, also discusses Federal Reserve monetary policy, the price of gold, and the outlook for China, India and Japan's economies and equity markets. (Source: Bloomberg)

Video Interview Link

00:00 U.S. stocks; Fed monetary policy; gold price
03:51 China economy, bank loans, bubble risks
05:52 India economy, stocks, investment strategy
08:15 Japan stocks "attractive"; emerging economies
Running time 12:20

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

There will now be a committee set up to identify and deal with systemic risk in the financial system in the USA. Somehow, an audit would hinder the FED in its ability to do its job, but a committee of political hacks is beneficial? Welcom to the broken clock.

EQUITY

Thursday in OPEX. Is there a more predictable day for trading? Some would argue not. The sequence for quite a while has been a high probability of an up Monday and a down Thursday, leading to adequate profits by going long on Fridays near the close, and closing the position on Wednesdays. Today seems to be favouring that higher probability scenario.

SPX Daily continues to put in time towards the “B” point of the Gartley pattern. Here is a reminder of the numbers for SPX:

X = 1150.45 (Jan 19)
A = 1044.50 (Feb 5)
B = 1109.98 (projected)
C = 1058.50 - 1069.50 (projected range)
D = 1124 - 1135 (projected range) Go short here if the pattern holds

If the current market patterns are maintained, SPX should be there by Wednesday of next week. What is interesting is that the TD wave count is lining up with the Gartley pattern. SPX daily is in the process of laying down either wave B of ABC following a 5 wave up sequence, or is putting in wave 2 of a 5 wave down sequence. EIther way, the next wave is down - whenever this one ends.

TA does NOT drive the market. The market DOES NOT CARE what you think, nor how cleverly you draw lines on a chart. Waves are obvious. The market never goes straight up nor straight down. Hence, it will go up then go down. Thinking that a ratio taken from the spiral of sunflower seeds can predict where this will happen is nonsense. If SPX gets to point “B” and then heads down - it will be a coincidence and nothing more. The numbers merely give traders a point to aim for.

Asia was red, except for Japan (the JPY was weaker). Europe is all green. The DAX gapped up at open and seems to be trending sideways within a 20 point range. Smack! Range trading. Is there any easier way to pick up some cash? Utilities and Consumer Discretionary are the only red sectors. The broad-based move, the range bound sideways move after a gap - this adds up to distribution in my mind. The game is on.

ES overnight traded in a rane between the pivot at 1094.75 and somwhere around 1099. It faded off of the lock up and trended sideways until falling some more into the Europe open. The DAX gap up did some good and ES rose from its slepp to test the highs of the night again. The action looked quite well behaved and suggests that the AH market shenanigans are not as prevalent as they have been in the past. With additional liquidity drying up, its hard to play reindeer games. Pivots:

R2: 1105 = Puts SPX up near the Gartley “B” point. I doubt this will happen on OPEX Thursday.
R1: 1102 = Notice how thight the pivots are to each other. Low volume and diminished volatility. While not exciting, these are great markets to play the swings in the range and pick up a few points with lower risk. This level was around the resistance from Jan 27th and Feb 2nd - before the Feb waterfall.
Neutral: 1097.25 = This is the TD resistance level from the waterfall. ES is running along this at the present time, with minor deviations to either side. I would expect a downward move at some point to the S1 pivot - but only based on OPEX Thursday lore.
S1: 1094.75 = This has already been tested once in the overnight. It’s a likely place for ES to close heading into OPEX tomorrow, IMHO.
S2: 1090 = Looks like the resistance level from Feb 16th. The 34 DMA is above this point so reaching it today would be a surprise to me.

FX

Here is some data and news regarding the EUR, courtesy of Forexlive.com:

Swiss trade balance +2419 mln in January, up from revised +1362 in December

BOJ’s Shirakawa: Must ensure market trust in fiscal rebuilding

German engineering sector in NRW agrees salary increase of 2.7% for workers from April 2011

Russia CBank seen buying $1.4 bln in forex market interventions on Thursday as rouble keeps firming

BOE’s Barker: UK recovery hesistant

UK January PSNB £4.339 bln, PSNCR -£11.770 bln

Swiss ZEW investor sentiment 52.5 in February, down from 56.2 in January

The IMF has announced 191 metric tonnes of gold for sale. A metric tonne is about 2,200 pounds. At 16 ozs in a pound and $1100 per ounce, that comes to around $7.4 billion. The price is down - no surpise and that would soak up a bit of USD.

DXY is up. CAD and JPY are stronger. EUR and GBP are weaker. ES is slightly down. See the pattern? I played DXY long and short on swings yesterday. Right now, I am DXY short - playing off of the upward trend in EUR that I see on the 3 minute chart.

EUR hit a nine month low. It think its time for a relief rally and consolidation before the next move up or down.

NEWS

IMF gold sales (seemed to matter to the price of gold. heh.). SEC may give investors more say on board of BofA. UK tax receipt woes leads to “first” January budget deficit. FED sets goal of “eventual” exit from housing finance. NOTE that even if the FED does nothing, their MBS holdings will diminish steadily over time due to principal repayment. ZH computed approximately $10 - $12 bb per month going forward - but I haven’t confirmed this yet. Obama is going to meet the Dalai Lama and spit in China’s tea. rut-roh.

DATA

8:30

PPI; Jobless claims;

9:00

RPY composite

10:00

Philly Fed; Leading Indicators from January. (remember that these include the equity market so it is almost a self-fulfilling prophecy. Only works if you believe that SPX really REALLY discounts the future at the present time.

“The dip in gold price is a correction and this should be taken as a great buying opportunity...the weakness that gold has shown recently is no reason for investors to get out of gold investments. I still believe gold should continue to be part of every investor’s wise investment portfolio.

There is no doubt the printing of money from central banks around the world is generating inflation, and it will increase going forward. That alone is a good enough reason to have gold in your investment portfolio. Gold remains the best bet as a currency these days because of the fact that the yellow metal supply is extremely limited.”

in Decoding Wall Street

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

China’s economy will slow down “meaningfully” and may even be at risk of a “crash” because of the nation’s excess capacity and as loan growth slows, investor Marc Faber said.

China’s fragile economy may undermine industrial commodities in the “near term,” the publisher of the Gloom, Boom and Doom report said. Faber added that he’s pessimistic on the euro as a possible bailout of Greece by other European countries increases deficits in the region.

Gross domestic product expanded 10.7 percent in China last quarter from a year earlier, the fastest pace since 2007. Lending in January exceeded the total for the previous three months while property prices climbed the most in 21 months, even after the central bank raised banks’ reserve requirements last month, reports released today show.

“The economy, for sure, will slow down meaningfully this year,” Faber said in an interview with Bloomberg Television in Hong Kong. “It has the potential to crash because of the overcapacities that have developed, and when loan growth slows down, we don’t know how the economy will react.”

A possible crash in China’s economy will be “disastrous” for raw materials used in industrial production, Faber said. He instead favors commodities including wheat, corn and soybeans and also said he doesn’t see a “huge downside risk” for gold.

“Other commodities haven’t gone up yet, such as the grains,” Faber said. “It may take time until they start to go up substantially but if you have time, you should be long wheat, corn, soybeans or own a farm, which is one way to participate in future food price increases.”

in Bloomberg.com

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

Over the past year, I have most often discussed the composite indicator constructed from the trends in gold, crude oil, and yields on the 10 year Treasury in the context of high readings. Collectively, when these trends are strong and rising, stocks tend to under perform. This has been the case over the past 25 years and over the past 10 months during this epic bull run. But what happens to equities when this indicator registers a low reading - as in the trends in gold, crude oil, and yields on the 10 year Treasury are weak and falling?

Figure 1 is a weakly chart of the S&P500 with the composite indicator in the lower panel. With the recent sell off in gold, crude oil and yields on the 10 year Treasury (i.e., higher bond prices), the composite indicator is registering an extreme, low reading, and this may be a good sign for equities.

Figure 1. S&P500/ weekly

How good? Let's develop a strategy and run some numbers.

In this strategy, I will "buy" the S&P500 when the indicator is less than or equal to the green line on the chart in figure 1. I will "sell" the S&P500 when the indicator rises above this green line. The study will go back to 1984, and it will be frictionless as slippage and trading costs are not considered.

Since 1984 such a strategy generated 50 trades yielding 238 S&P500 points. Buy and hold netted 900 S&P500 points. 68% of your trades were winners, and the time spent in the market was only 10%. In other words, your strategy made 1/4 of buy and hold with only one-tenth of the time in the market. This is actually quite good because when you are in the market with this strategy, you are seeing your money grow at an accelerated rate.

The equity curve for this strategy is shown in figure 2. For the most part, the curve is appealing especially because of the nice 45 degree rise between 1984 and 1998. From 1998 to 2001, the curve is a bit choppy and then the curve peaks in 2006. After that, significant draw downs were seen especially during the market crash of September and October, 2008 when all assets became highly correlated.

Figure 2. Equity Curve

Now let's look at this strategy a little bit more closely, and to do this, we will look at the strategy's maximum adverse excursion (MAE) graph. See figure 3. MAE assesses each trade from the strategy and determines how much a trade had to lose in percentage terms before being closed out for a winner or loser. You put on a trade and if you are like most traders, the position will move against you. MAE measures how much you have to angst and squirm while you are in that position. Because once you close the position out for a loss or a win, you are done worrying about it. As an example, look at the caret in figure 3 with the blue box around it. This one trade lost 6% (x-axis) before being closed out for a 3% loser (y-axis). We know this was a losing trade because it is a red caret.

Figure 3. MAE Graph

The first thing we notice about this strategy is that over 85% of the trades had MAE's less than 4%. This is to the left of the blue line. That's extraordinary. You put on a trade and 85% of the time you don't even lose more than 4%. How sweet is that?

But let's look to the right of the blue line where we see that 5 out of the 50 trades had excessive (>10%) MAE's. I have labeled these trades and as you can see, 3 are from late 2008, and 2 are from other notable periods in market history. Of the 5 trades with an excessive MAE, one recovered to be a winner; 3 recovered slightly but still lost money; and there was one trade -look to figure 3 in the upper right corner - that lost 18% after a 24% draw down or MAE. Ouch!

So what conclusions can we draw so far?

One, from 1984 to 1998, when the trends in gold, crude oil and yields on the 10 year Treasury were weak and falling, this was a buying opportunity for equities. Inflationary headwinds -real or perceived - were non-existent and stocks continued on their bull market ways. This seems to be most pronounced from 1984 to 1998 or during a secular bull market.

Two, during times of market stress, like 1998, 2001 and 2008, it appears that all assets are vulnerable. Weakness is seen in stocks as well as gold, crude oil and yields on the 10 year Treasury bond (i.e., bonds go higher).

So that begs the question: is this indicator now flashing bullish or bearish? Based upon this data (as opposed to the recent sentiment data), I don't have an answer. It appears to be one of those situations where we won't know until we know. If this was a bull market, then I would state that "this is a buying opportunity"; I am bullish on the S&P500 for 2010, but it is more of a recognition that I cannot get too bearish on equities as the first major pullback where sentiment turns bearish (i.e., bull signal) will be bought. I would prefer to wait until that happens or at the very least, I could see taking a cautious or graded approach at this juncture - you don't need to go all in.

Lastly, let me just mention the other reason for concern here. Stocks and commodities remain highly correlated as all risk assets seem to move in lock step these days. Maybe the beating seen in commodities is only harbinger of what is to come for equities.

In any case referring back to figure 3, we note that any trade that loss over 5% (i.e., MAE>5%) had a high likelihood of not recovering. Failed trades lead to significant losses for the markets. And maybe that is the lesson here. If the S&P500 loses over 5% from Friday's close that should be a caution flag. On the other hand, lower prices will bring out the bears (i.e., bull signal) and it will be time to get long. Failure at that juncture - when sentiment is bearish - will be a more ominous sign for the markets.

Faber backs precious metals like gold as amongst his most favored investments. As he advices, "The risk is really not to own any precious metals at all."

in Equity Master.com

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

I really like the developing wave patterns on the currency side of things. The DXY is right on track of tracing out an almost textbook third motive. Admittedly that’s a very early assessment but the first and second waves, as well as the currently evolving third wave look very nice in terms of form, sub-divisions, angle, and velocity. I know this doesn’t look like much to most equity traders, but let me assure you that a bunch of dollar bears are sweating bullets right now.

Where do we go from here? I think it’s up - at least until the 80/81 cluster. But let’s consult our DXY retracement calculator - courtesy of 2sweeties from retracementlevels.com:

As you know I always start with the odds and considering that this may be a third wave I am extra conservative and have placed my 100% mark at 83.44. Based on that the odds for a meaningful reversal are 75.73% at 80.7 and 87.45% one handle further up at 81.75. Now under regular circumstances I’d say that 75.73 would be a decent spot to get positioned for some short side. But again - we might be dealing with a third wave here and if I was planning to go short (which I don’t - only playing the long side) I would wait until at least 81.75. Please bear in mind that this bias is predicated on me having faith in EWT and its wave counts in the first place - if you don’t, then just fade my comment and focus on the odds.

The frequency tab tells a bit of a different story. There seems to be a a cluster of reversals around 80.7 and even a stronger one at 80.06. The next two above (81.75 and 83.44) also have respectable frequency readings above 10%. What to do - what to do?

I think at the current stage of the wave count trading the short side might not be the most profitable endeavor. The main trend seems to have switched to the long side and thus it is here where you should expect to see some nasty surprises - the bucky bear squeeze is on! If you are long since 77, then either take profits at 80 or hold to see 81.7 or 83. The wave count appears to be progressing nicely and we should not fall into the trap of over trading.

If you simply look at the chart it’s quite clear where the resistance clusters will slow the Dollar’s run. Bundle in the odds I proposed and the long side is promising right now. Also, once we get a reversal in the form of another sub-division we might push up hard in a third-of-a-third type scenario. This is the money trade we should be looking to get positioned for. I will keep you guys posted when we are getting close.

BTW, if you’re interested in trading currencies like the pros by facilitating statistical odds head over to retracementlevels.com and pick among various daily calculators:

EUR/USD
GBP/USD
USD/CHF
USD/JPY
AUD/USD
UUP
UDN

If currencies aren’t your thing then 2sweeties’ got your back:

Gold COMEX (GC)
Hang Seng Index (HSI)
Nasdaq 100 Index (NDX)
Oil (CL)
PowerShares QQQ Trust (QQQQ)
Russell 2000 Index (RUT)
S&P 500 Index (SPX)
SPDRs (SPY)
S&P/TSX Composite Index (TSX)

And those are just the daily indicators. I personally use 2sweetie’s hourly E-Mini S&P 500 (ES) and I wouldn’t even thinking about touching a contract without checking the odds first.

UPDATE 4:00pm EDT: PRSGuitars is back with a vengeance - I’m posting his very interesting chart without commentary as I’m not following this particular pattern.

I would however love to see it play out But again - this is one of those ‘exotic ones’ (at least in my book) I leave to others to follow. But I must point out that the resolution does coincide with my own wave count - so we shall see.

Cheers,

Mole

“If I am right about further monetization and further government debt growth, the risk is really not to own any precious metals at all”

in FT Blog

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

The Daily Gold blogger Harvey Organ reports that ECB and other Central Banks are terminating the currency swap with the US Federal Reserve Bank as of Feb. 1, 2010. How they are going to unwind the currency swap is something very interesting to watch. It could finally trigger the long expected US dollar crisis: Collapse of the US treasury market and the US dollar itself.

In a currency swap, two central banks print their own currency out of thin air and swap them in a zero interest loan according to the exchange rate. Then after a period of time, they return the loaned currency to each other. For example the FED will loan US dollars to Bank of England (BOE) while BOE loans British Pounds to the FED. Upon the end of currency swap agreement, they unwind the trade by the BOE returning the US dollar, and the FED returning the British Pounds.

The question is how they are going to be able to unwind? The total swap is believed to be as high as US$500B. Some say as high as US$2T. If the central banks merely locked up the cash in a vault, they could easily return the money. But that would defeat the whole purpose of currency swap. Instead of being locked up in a vault, the swapped currency must have been SPENT in some way. Then the question is how do they get the money back if it is already spent, sold out or otherwise given away?

For example I long suspected where did the British get the money to buy US treasuries over recent times? According to latest official data, UK's holdings of US treasuries was up $145.1B in 12 months, while China's holdings went up only $76.4B.

Where did the UK get the money to buy US treasuries? Unlike China which earns US dollar from its trade surplus against the USA, The UK has a huge trade deficit against the USA. It spend US$2 buying US goods for each US$1 it earns selling products to the USA. Where did they get the US dollars to purchase US treasuries? If it was not from trade balance, it must be from the give out by the FED, in the name of currency swap. It cost UK nothing to print British pounds and then exchange for the dollar, just like it costs the FED nothing to print the dollars.

In a sense, FED is secretly buying our own debts through foreign hands, via the currency swap agreements!!!! Now, how is the currency swap going to be unwinded? What magic are they going to pull this time, asn the BOE has already SPEND out the US dollar in buying US treasuries. It does NOT have the money to return to the FED.

Likewise, probably the FED does not have the money to return to BOE either. They must have spent out the British Pounds as well as other foreign currencies, in repeated attempts to sell foreign currency and buy US dollars, to support the dollar, in recent times.

It's going to be fun to watch how the unwinding can be done. If my speculation is right, BOE must sell its holding of US treasuries to raise US dollar to unwind the loan, and the FED must also need to sell dollar and buy British Pounds to unwind its loan as well. Both would be fatal blow to the value of US treasury and US dollar.

Time to run to precious metals as your financial safe haven. Don't run to euro, as the eurozone is crumbling down. Don't run to Japanese yen. Japan has an even worse debt problem. When Japan collases under its debt it must sell US treasuries to salvage its own currency, which will trigger a domino effect leading to the fall of the dollar. The only thing safe are precious metals and commodities.

But unlike most other precious metal bugs I will not tell you to run to gold, or silver. Every one talks about gold as if it is the only safe haven. When every one talks about one thing, be careful. The world is not in shortage of gold. The world has plenty of gold that could easily lasts a couple thousand years if we do not produce gold any more. Warren Buffet famously critized gold by saying that you dig out the metal from the ground, and then dig another hole to hold up, and have to pay armed guards to watch it, what for?

I am also questioning the wisdom of silver investment. Silver bugs have been calling for silver shortage for years. But I never see any solid data to back up the claim of shortage. If there is no shortage, if a precious metal's price is only supported by investment demand, then there is a problem because anything that is purely supported by investment demand, is by definition a bubble, the investment demand could easily turn into investment supply in an instance.

The only good precious metal investment, must be one which is based on REAL industrial shortage, not by the hypothetical investment demand. If there is an industrial shortage, the price MUST go up regardless what investors believe. And price movement due to real shortage, on the other hand, can create solid and reliable investment demand. Such precious metals will provide the best performance way much better than gold.

The only two precious metals I see solid data to support a supply shortage case, are platinum and palladium. Of course my favorite is PALLADIUM. My most favorite mining stocks are Stllwater Mining (SWC) and North American Palladium (PAL), the only primary palladium producers. Russia's Norilsk Nickel (NILSY.PK) is world's largest palladium but they are mainly a nickel producer. South Africa's Anglo Platinum (AGPPY.PK) and Impala Platinum (IMPUY.PK) produces by-product palladium. Watching Platinum Today on related PGM metals news, and KITCO for price movements.

The parabolic price rally of palladium in the past one year, a performance that is far better than gold, silver and platinum, has vindicated my conviction on a palladium bull case.

Why palladium? FOUR things make palladium extremely bullish:

1. Termination of Russian government palladium stockpile sale, due to stockpile depletion.

2. Looming South African electricity crisis could strike again any time, just like two years ago.

3. Launch of ETF Securities physical palladium fund (PALL) in the US market.

4. Long term potential of palladium used in Cold Fusion, make it a must have strategic metal.

I have discussed these points in many of my past articles which I will not repeat. I merely needs to point out that Impala Platinum's PGM Supply Demand data confirms dramatic reduction in Russian palladium supply, as the stockpile sale has ended. There is now a big strictural deficit. Read more detailed discussions on GIM forums.

I do not have to cover the recent launch of ETFS platinum and palladium funds, either.You can see the powerful price surge of palladium recently, and read what fellow SA contributors have to say:

Why Gold ETFs Should Be Afraid of Platinum Cousins
Platinum and Palladium ETFs: Dare They Outshine Gold?
Platinum, Palladium ETFs Are a Home Run
Pent-Up Demand Is Behind Platinum Fund's Success
New ETFs Off to Roaring Start
Don’t Blame Platinum, Palladium ETFs

Sadly, even though people have caught attention to platinum and palladium. There has been absolutely NO mentioning of the end of the Russian palladium stockpile sale, and how palladium rallied from $300 to $1100 in 2000 merely because of a FALSE rumor related to the stockpile sale. Nobody mentioned the South African electricity crisis either, even it triggered quite a rally in PGM prices in early 2008, and another South African electricity crisis is looming again in the near future. Please read the background discussions.

And yet most people don't even know about platinum and palladium. All they know is gold gold gold, silver silver silver.

Let them have gold. I want to have palladium. And I can not own enough stocks of SWC and PAL. I have been predicting and advocating for a super bullish palladium rally for almost two years. No one paid attention until it really happens.

But this is just the start! The real fun will begin when auto makers realize what's going on in Russia and South Africa, and start to panic hoard. If it were not for the foolishness of major industrial user like TOYOTA(TM), GM and FORD (F), rhodium would never see gigantic price swings from $300 to $11000. Shouldn't industrial users acquire and keep a plentifully large stockpile when rhodium was at $300, so they do not need to pay $11000 an ounce a few years later? They never learn.

Full Disclosure: The author is heavily invested in palladium mining stocks SWC and PAL, and own PALL. The author owns silver mining stocks like CDE, SSRI, PAAS but have no interest in ETF funds GLD and SLV, as I do not trust their gold and silver holdings.

Latest Jim Rogers video interview, Bloomberg January 25.

00:00 Bernanke reappointment, Fed policy; Geithner
04:17 Central banks' monetary policies; bailouts
09:00 Emerging markets; commodities; U.S. recovery
17:10 "Too-big-to-fail"; China property "bubble"
19:33 Gold "untouched by investors," commodities
28:05 Dollar, yen "flawed" over long term
Running time 30:01

Jim Rogers was on Bloomberg TV earlier today discussing Ben Bernanke reappointment and the Central Banks` role in the economies.

Bloomberg Video Interview, January 25 (Link)

Rogers also discussed global economic growth and central banks' monetary policies, and the outlook for the U.S. dollar, yen and commodities market:

00:00 Bernanke reappointment, Fed policy; Geithner
04:17 Central banks' monetary policies; bailouts
09:00 Emerging markets; commodities; U.S. recovery
17:10 "Too-big-to-fail"; China property "bubble"
19:33 Gold "untouched by investors," commodities
28:05 Dollar, yen "flawed" over long term

Running time 30:01

"The price of gold is likely to hover between 950 dollars an ounce and 1050 dollars. I doubt we’ll go below 1,000.”

in CNBC Europe

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

Marc Faber, publisher of the Gloom, Boom & Doom Report, talks with Bloomberg's Carol Massar and Matt Miller about the outlook for the U.S. stock market.

Faber also discusses U.S. purchasing power and investment strategy for commodities.

Video Interview Topics:

00:00 2010 stock outlook; bonds, government debt
01:54 Asset bubbles; financial industry, Fed policy
04:37 U.S. purchasing power and dollar
06:22 Strategy for commodities, gold
07:24 "Some weakness is emerging" for stocks.
08:51 Stock pick: Thai Beverage Pcl

BLOOMBERG VIDEO INTERVIEW LINK

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

"In the 1970`s, gold was going up for some very sound supply and demand reasons. As the gold bull market gathered strength, it pulled in everybody so that in the last year or two it tripled. Just like the Nasdaq in 1998 and 1999. Everybody was shrieking that gold always has ben, always will be an inflation hedge. Just like in 1998 when people were saying "The dot-com, new-economy revolution will go on forever.

If anybody had gone back to look at gold, they would have seen some very long periods where it has done nothing, and long periods where it has actually gone down during inflationary periods."

in Inside The House Of Money (2006)

The composite indicator that measures the trends in gold, crude oil, and yields on the 10 year Treasury will end the week in the extreme zone, and this should be a headwind for equities. Inflation pressures, whether real or perceived, are heating up. See figure 1 a weekly chart of the S&P500 with the indicator in the lower panel.

Figure 1. S&P 500/ weekly

The rally that began in March, 2009 has stalled every time this indicator has hit the extreme zone. These are shown by the trade signals in figure 1. During this rally and over the past 25 years, strong trends in gold, crude oil, and yields on the 10 year Treasury have been a headwind for equities. I recently reviewed the use of this indicator as a filter for a simple moving average strategy in our series on developing a trading strategy. I would also recommend reviewing the article "The Faber Model and Inflation Pressures". Once again, this filter improves the efficiency of this simple trend following model.

Lastly, let me make a comment to those readers who are looking for an indicator that calls every market turn all the time and it does so with the utmost of precision - the proverbial holy grail. If you are one such person, then this indicator is not for you. But in the imperfect world of the market or in a world where we try to apply order or structure to randomness, this indicator is pretty good in my opinion - and it makes sense. Hopefully and this is a word I don't like to use in my investing, these precuations will prevent us from losing dollars and cents over the next couple of weeks.

Now, just consider what the impact would be if China were to increase its gold holdings from presently less than 2 per cent of its 2.2 trillion dollars reserves to 6% or 10%. Each 1% increase in gold weighting would mean gold purchases of more than 20 billion dollars, or nearly 600 tonnes.

When governments spend far more than they collect in taxes (large fiscal deficits), and when central bankers engage in reckless monetary policies and, instead of treating the causes of the problems (excessive debt growth), treat the symptoms (deflationary forces), gold as a currency does make a lot of sense.

in BullionVault

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

Archiv für das Tag 'Gold'

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“Danger, Danger Will Robinson”

Gold Will Outperform Paper Currencies Like The Euro And The US Dollar

Dr. Marc Faber: “Forget Stocks…Buy Gold…Forever!”

Trends In Gold, 10 Year Treasury Yields, And Crude Oil

Paper Currencies Will Depreciate Against Gold

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Currencies: Gold, Silver And Singapore Dollar

A Greek fable about the gold standard

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Bloomberg Video Interview: February 22

FEDERAL RESERVE HIKES DISCOUNT RATE AFTER MARKET

Living Inside a Broken Clock: Thursday, Feb. 18, 2010

“The Dip In Gold Is A Buying Opportunity”

Tuesday Thoughts

Bloomberg Video Interview Highlights: February 2010

Trends In Gold, 10 Year Treasury Yields, And Crude Oil

Precious Metals: The Risk Is Not Owning Any Precious Metals At All

Bucky Bear Squeeze

Monetization And Precious Metals

Unwinding of Currency Swap = Looming US Dollar Crisis!

Bloomberg Interview: January 25 (Video)

Bloomberg Video Interview: January 25

Gold Price Outlook

CNBC’s Kudlow Endorsed a Gold Backed Dollar

Bloomberg Video Interview: January, 12 (Full)

Gold And Inflationary Periods

Inflation Pressures Heating Up, Again!

Gold As A Currency Does Make A Lot Of Sense

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